Discovering undervalued shares throughout a market sell-off is likely one of the easiest methods to spice up your retirement objectives. A promising candidate proper now could be Six Flags Leisure (SIX -1.42%), one of many largest park operators within the U.S. Listed here are three causes traders can anticipate the inventory to commerce greater inside the subsequent 5 years.

No extra freebies

Six Flags has a powerful model in leisure leisure. It operates 27 regional parks and waterparks throughout the U.S., Mexico, and Canada. It has an extended historical past of producing constant annual revenues, excluding 2020 when the pandemic compelled parks to quickly shut down.  

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However earlier administration made the error of driving visitors progress by way of free tickets and heavy discounting, which saved Six Flags’ profitability from reaching its full potential. Whereas the corporate has generated a constant excessive working revenue margin of round 26%, that’s a lot decrease than Walt Disney‘s parks, experiences, and merchandise phase working margin of 35%.  

CEO Selim Bassoul took over in 2021 and carried out a brand new plan to lift ticket costs by eliminating freebies and discounted ticket gross sales, however he is going about it in a wise means.

As Six Flags raised costs, it additionally invested in new experiences past rides to provide one thing again in return for asking clients to pay full worth. It is within the course of of putting in new visitor facilities and points of interest, and enhancing the general aesthetic of its theme parks to make them a extra nice expertise for company. 

As Bassoul stated on the corporate’s third-quarter earnings name final 12 months, “These massive bets can have massive payoffs.” Whereas it is early in these initiatives, which was mirrored in final quarter’s 21% drop in income, administration is inspired that visitor satisfaction and spending per capita are on target. 

The corporate experiences fourth-quarter earnings on Thursday, March 2, the place administration is anticipating to indicate improved working revenue.

Six Flags should execute a fragile balancing act of managing worth and demand, but it surely does have key benefits working in its favor.  

Six Flags has pure aggressive benefits

Crucial motive to wager on Six Flags’ turnaround is the corporate’s distinctive belongings and the issue concerned in new entrants constructing new theme parks.

Six Flags advantages from restricted competitors within the theme park enterprise. Walt Disney is a supreme theme park operator, however you will not discover a Disney theme park in Texas, Virginia, Missouri, Illinois, or many different states the place Six Flags operates. There are a number of park operators across the U.S., however they’re separated geographically from one another.

Here is why:

• Theme parks are costly to construct — costing between $500 million to $700 million, primarily based on Six Flags’ estimates. 
• There are zoning restrictions and restricted actual property websites giant sufficient to assist the scale of a theme park.
• Constructing a theme park contains lengthy growth lead-times.

These are pure aggressive benefits defending Six Flags’ means to generate constant revenues and earnings. This implies if administration efficiently executes its ticket-pricing technique and raises revenue ranges, the inventory might rise considerably in worth over the following a number of years.

A tailwind in journey and tourism

One remaining catalyst that might additionally assist push the inventory greater is the business estimate for theme park revenues. The market is anticipated to achieve $89 billion by 2025, up from $73 billion in 2019, in keeping with Statista. A journey restoration popping out of the pandemic, together with greater ticket costs, provides Six Flags a pleasant combo to doubtlessly develop income.

Furthermore, Six Flags may gain advantage over the following decade from extra folks spending cash on experiences, versus bodily items, which has been a rising pattern in recent times.

These developments is probably not mirrored within the inventory’s valuation. The inventory at present trades at 1.6 occasions trailing income, which is a reduction to the S&P 500 common. If Six Flags can develop income and push its working margin greater, the inventory would deserve a better valuation. It traded at a price-to-sales a number of of round 4 earlier than the pandemic.

As for dangers, Six Flags has a debt-heavy steadiness sheet. But it surely has a trump card to deal with its debt (if it ever turns into a difficulty) because it owns a whole bunch of acres of actual property. This provides the corporate a whole lot of choices to lift additional money from asset gross sales or different monetary maneuvers.

All stated, if in case you have a minimum of 5 years to speculate and are prepared to just accept some danger for a excessive reward, Six Flags is a promising worth inventory to wager on.